The Conditional Nature of Embeddedness: A Study of Borrowing by Large U.S. Firms, 1973–1994

Abstract

Economic and organizational sociologists have increasingly demonstrated that the actions of individuals and firms are affected by the social networks within which they are embedded. In recent years scholars have begun to recognize that the effects of these social networks may vary across populations or types of relations. This article examines the extent to which the effects of interfirm networks on the behavior of firms are historically contingent. Focusing on the level of debt financing among approximately 140 large U.S. corporations over a 22-year period, the authors show that the extent to which the firms' use of debt was influenced by those with which they were tied through director interlocks declined over time. The authors argue that this decline in the network effect reflected a shift in the institutional environment within which the firms operated, and that it was driven by three processes: the professionalization of the finance function within the firm, the internalization of financial decision-making, and the increased volatility of the environment. They conclude that corporate financing is socially embedded, but this embeddedness is historically contingent.

The Complexity of Social Capital: The Influence of Board and Ownership Interlocks on Implied Cost of Capital in an Emerging Market

“…For these reasons, the investigation into corporate finance, including the financial cost of capital, has been gaining in prominence in the field of organizational strategy, economic sociology, and corporate governance [14,15].…”

“…In view of the above, in this article we analyze the cost of capital by Brazilian publicly quoted companies, accepting that the assessment of such firms and their access to credit takes place against the background of the concrete social relationships in which they are embedded [12,15,16]. We therefore seek to assess the cost of capital based on an estimate known as implied, or ex ante, which is based on the forecasts of analysts [17,18], while other studies, like the one by Uzzi [12] and Uzzi and Gillespie [11], were based on ex post estimates, which used the history of the returns achieved.…”

Prestigious stock exchanges: A network analysis of international financial centers

“…For instance, in a study of international trade patterns, outward ties would be captured by the flows of exports to different countries, and a pattern of increasing exports could signify increasing global influence. In our study of dominance in 5 Examples of social network applications to economics and finance are Smith and White (1992), Brewster Stearns and Allan (1996), Mizruchi and Brewster Stearns (2001), Sorenson and Stuart (2001), Uzzi and Gillespie (2002), Mizruchi (2004), Mizruchi and Davis (2004), Byrd and Mizruchi (2005), Mizruchi and Bey (2005), Brewster Stearns and Mizruchi (2005), Mizruchi, Brewster Stearns, and Marquis (2006), Uzzi (2007), and Neuman, Davis, and Mizruchi (2008). 6 A useful reference textbook on methods and applications in social network analysis is Wasserman and Faust (1994).…”

Do Inter-firm Networks Make Access to Finance Easier? Issues and Empirical Evidence

“…borrowing (Mizruchi et al, 2005); that having on their boards representatives of financial institutions allows firms to afford higher debt (Mizruchi and Stearns, 1994); that the source and amount of external finance are influenced by the type of representative sitting on the firm's board (Stearns and Mizruchi, 1993). Similarly, Khanna and Thomas (2009), using a sample of 457…”